ISOCOSTS AND ISOQUANTS PDF

In economics an isocost line shows all combinations of inputs which cost the same total amount given total cost of inputs. A line joining tangency points of isoquants and isocosts (with input prices held constant) is called the expansion path. Isoquants: An isoquant (equal quantity) is a curve that shows the combinations of certain inputs such as Labor (L) and Capital (K) that will produce a certain. Class 3 isocosts & isoquants. 1. ISOQUANTS Equal Quantity of Production; 2. MEANING OF ISOQUANTS • Isoquants are the curves, which.

For the convenience of the students, we can state them as follows. Production theory is extended to deal with two variable inputs by the introduction of isoquants.

Each such point shows the equilibrium factor combination for maximising output subject to cost constraint, i. Put differently, a cost-minimizing input bundle must satisfy two conditions:.

With right angled or L shaped, isoquantinputs can only be combined in fixed proportion in production.

We may now speak a few words about the slopes of isoquant and an isocost line. We could draw as many isoquants as we like. Moreover, supply depends on cost of production. With the change in the factor prices the slope of iso cost lien will change. The isocost line is combined with the isoquant map to determine the optimal production point at any given level of output.

iosquants It is known as the actual rate of factor substitution, isoqunats rate at which the firm can substitute labour by capital in the market place. The marginal physical product per rupee of one factor must be equal to tht of the other factor. In this section we examine the characteristics of isoquants, define the economic region of production and consider the special cases where the commodities can only be produced with least cost factor combination.

Navigation menu Personal tools Log in Request account. An isoquant shows the various combination of two inputs that can be used to produce a specific level of output.

Only if a dollar spent on each input is equally productive is the input bundle optimal. This page has been accessedtimes. If, in the short run, its total output remains fixed due to capacity constraint and if it is a price-taker i. Thus at a point isoqyants equilibrium marginal physical productivities of the two factors must be equal the ratio of their prices.

Its slope is given by the ratio of the prices of the two factors.

The firm can maximize its profits either by maximizing the level of output for a given cost or by minimizing the cost of producing a given output. A higher isoquant represent lower level of output. To see this, consider an example. This is picturised by his budget line called isocost line.

The essential condition is that the slope of the isocost line must equal the slope of the isoquant. In this equationPL is the price of labour and Pk is the price anf capital. Isoquants are typically drawn as being convex to the origin because of the assumed substitutability of inputs. So, like the consumer the producer has also to operate under a budget resource constraint.

Isoquant and Isocost Lines (With Diagram) | Economics

Isoquants are negatively sloped in the economically relevant range, convex to the origin and do not intersect. A line joining tangency points of isoquants and isocosts with input prices held constant is called the expansion isoqkants. Retrieved from ” http: Isoquants, iskquants as IQs, possess the same properties as those of the indifference curves.

The iso quant closer to the origin indicates a lower level of output. Iso quant is also known as Production indifference curve.

Isocost-isoquant analysis | economics |

This condition makes sense: The cost-minimization problem of the firm is to choose an input usoquants KL feasible for the output level y that costs as little as possible. It looks for that factor combination that is on the lowest of the isocost lines.

Views Read Edit View history. Specifically, the point of tangency between any isoquant and an isocost line gives the lowest-cost combination of inputs that can produce the level of output associated with that isoquant.

This equals the ratio of marginal productivity of two inputs. When the amount of money spent by the firm changes, the isocost line may shift but its slope remains the same.

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ISO QUANT AND ISOCOST – WikiEducator

Each curve shows the alternative combinations of labour and capital that would produce 8 and 10 units of output, respectively.

In fact, every point on a given isocost line represents the same total cost. The long-run production function of a firm involving the usage of two factors, say, capital and labour is represented by equal-product curve or isoquant.